Inside Intellectual Ventures
19May09

Among other goodies, in the next issue of IAM we have an in-depth portrait of Intellectual Ventures. It looks at what they are getting up to and what they are planning to do in the future. Written by our Finance Editor Nigel Page, the article includes interviews with all of IV's main players, including the likes of founders Nathan Myhrvold, Peter Detkin and Edward Jung. Though I say it myself, it's good stuff. Anyone who reads it is going to have a hard time justifying a claim that IV is nothing more than a patent troll or NPE.

As Nigel shows, there is clearly a whole lot more going on at IV than straight patent licensing and acquisition. For example, there is a new financing operation, being run by Vincent Pluvinage, based on patents. This first saw the light of day in a deal involving semi-conductor company Transmeta (covered on this blog back in January). Another deal, involving Telcordia, was announced in February. In the article Pluvinage states: "We estimate that there are currently around 200 similar opportunities for these types of deals in Europe and the US alone ... There are certainly a lot more in the hopper for this year than we could possibly handle. We want to pick the best ones and then be able to move quickly. What I can say is that the sweet-spot for these deals will be in the US$10 million to US$50 million range, in terms of the guaranteed cash that we’ll be prepared to put up.”

Also under the spotlight are IV's move into Asia and Myhrvold's particular pet project: invention creation. "One of the interesting things about our business is that it’s so future-oriented ... This sounds great, but of course it means that we and our investors have to be very patient. Because of the time-scales, we’re trying to target technologies that will be right for where we think the market will be five years from now. We’ve been filing about 500 patents a year for the last few years. In total we’ve got 77 issued patents and another 1,862 applications pending,” Myhrvold says.

One thing is in no doubt. IV has an awful lot of money to play with. It has raised around $5 billion from its investors, much of which is in the form of capital commitments that IV can draw down on over the next 10-plus years. Nigel continues:

Although Myhrvold declines to comment on specifics, he confirms that, broadly speaking, IV’s funds operate on similar terms to private equity and venture funds: “We hope to make most of our money out of the carried interest. But we also have a management fee. As you know, 20% on carried interest and 2% in management fees are meant to be the standard terms. But there’s always a huge variation and most funds negotiate specific terms with their investors. We’re no different.”

To date, IV has spent US$315 million acquiring assets from individual inventors, a further US$135 million-plus on its own invention capability and approximately US$848 million with SMEs, enabling these businesses to “commercialise their inventions”, as Myhrvold puts it. Thus far, IV has returned approximately US$1 billion to its investors. And what about projected future returns? Myhrvold replies: “We hope that this asset class will be competitive with returns from venture capital and private equity. But we can’t be more precise at this stage.”

We go to press on IAM the day after tomorrow and it will publish on 1st June.